Can Crowdfunding Take Africa Forward?

The question to be answered is: Is crowdfunding a viable option?

It may seem like an odd place to start but Africans have been practicing a form of crowdfunding since time immemorial, and the one instance where this is most evident is with funerals. When there is a death in the family, the community would, and still does, come together with contributions to help the family. As the Tanzanian Haya proverb states, “many hands make light work”; this philosophy has been woven into the core of the diverse African cultures that have existed for centuries. Ubuntu (“motho ke motho ka batho”/a person is a person because of other people) and harambee (all pull together), and the many other African philosophies bear testament to this.

The word ‘crowdsourcing’ was coined by Jeff Howe, an editor for the US magazine Wired in an article, and he then expanded on this in his 2009 book Crowdsourcing: Why the Power of the Crowd Is Driving the Future of Business. In explaining it, he positions crowdsourcing as “how the power of the many can be leveraged to accomplish feats that were once the responsibility of a specialised few.” Since then, there have been numerous examples of crowdsourcing, from Wikipedia where volunteers upload data, to Ushahidi in Kenya which started as a platform to map outbreaks of violence following the 2008 elections and is now used across the world in various ways.

Crowdfunding, as an extension of the idea of crowdsourcing, is said to have been pioneered by keyboardist Mark Kelly of the rock band Marillion, when he raised funding through a mailing list called Freaks. Members gave donations to ensure that the band could tour the US in 1997, eventually putting together $60 000. The band then offered free CDs of shows from the tour to anyone who donated $10 or more.

Marillion would later ask their fans (a 6 000-person mailing list) to donate money to enable the band to record an album in 2000 where they would get a special version of an album with a twenty-page book, a bonus CD with extra tracks, and, if they ordered it in time, their name printed in the credits. This became their modus operandi and, for their next album, where people could even win access to backstage passes, etc., they had 16 000 pre-orders.

Since then, there have been a number of crowdfunding sites that have launched globally with Kickstarter, launched in 2009, Indiegogo, launched in 2008, and GoFundMe, launched in 2010, probably being the most dominant and well known.

From an African perspective, with the world historically raising funds for us poor Africans, the question to be answered is: Is crowdfunding a viable option? And, if the answer is yes, which it surely is, a further question is: What are the challenges that we have to address? Think about the stokvel. According to the National Stokvel Association of South Africa (NASASA), the origins of the stokvel are as follows: In the early 19th century, English settlers in the Eastern Cape held rotating cattle auctions known as “stock fairs”; these became known as “stokvels” by the locals who would pool resources to trade livestock. Since that time, stokvels have existed as “voluntary groups of natural persons (members) bound by a common cause who pool financial resources for the benefit of the group.”

NASASA currently has 11.5 million individuals in 81 000 stokvel groups from all nine provinces and estimates the stokvel economy to be valued at R49 billion in South Africa. The money is there.

The most definitive data on crowdfunding on the African continent is in a report by the London-based Afrikstart, which is positioned as a “pan-African crowdfunding platform set to provide funding, training, and mentoring to entrepreneurs in Africa” with a focus on women and the youth. The report looked at the African crowdfunding landscape in 2015 and clearly demonstrates that Africa has embraced crowdfunding, with an emphasis on business.

The report states that in 2015, “there were 57 active platforms headquartered and operating in Africa” with 21 in South Africa and 9 in Nigeria. It says further that, “Donations and equity platforms are the fastest-growing crowdfunding models. Africa-based crowdfunding platforms mainly specialise in promoting crowdfunding campaigns related to social causes (31.5% of the total platforms), business and entrepreneurship projects (21%), and then creative and innovative projects (17.5%).” These figures have more than likely changed, with newer platforms coming online and others falling by the wayside, for various reasons.

In a TEDxBedford talk in 2014, Mark Kelly said that “Crowdfunding is about a relationship built on respect and trust.”

This is key when it comes to developing crowdfunding platforms because the reality is, when it comes to anything involving money online, Africans still lag behind as a result of the trust issue. For example, in an IAB South Africa and Visa-sponsored study by Effective Measure, it was found that 53% of South Africans don’t buy online due to a lack of trust and would probably be more comfortable if there was zero liability or some form of online protection. This, as well as a fear of being scammed by people they do not know, is something that any crowdfunding platform focusing on the continent needs to address.

Uprise Africa, an equity crowdfunding platform that went live in 2017, is very aware of this. Vuyisa Qabaka, who heads up Partnership and Investor Relations says, to address this, “the biggest challenge thus far has been around regulations in developing a model that adheres to the current legislative frameworks as required by the Financial Services Board (FSB). A great deal of time and legal advice has gone into getting our structures and processes right to ensure we protect both the entrepreneur and the public interest while adhering to regulations. In addition to the legal challenges we are also creating new processes from scratch, so it's a reiterative process of learning and growing with our entrepreneurs through this journey. It’s been challenging but also extremely rewarding thus far.”

Uprise Africa has been created to help entrepreneurs raise the capital they need. “Through extensive experience in the South African ecosystem and exposure to the global ecosystem, we noticed the role that equity crowdfunding was playing in other countries, positively benefiting new business development and the gap it could fill in South Africa and Africa. Uprise Africa will empower entrepreneurs with a platform to raise the capital they need to make their vision viable ensuring that SMMEs are not dependent on traditional banking finance, which is often limited and comes with great personal financial risk to them.” Qabaka adds, “Equity crowdfunding exchanges capital investment from the crowd for equity shares in the entrepreneur's business. People from the crowd that invests in projects that reach their funding goal will receive share certificates and become shareholders in the business. Equity crowdfunding is an evolving, alternative way to invest in startups and growing SMEs. The core difference is what is being ‘exchanged' through the crowdfunding process. Crowdfunding at its core is the pooling of small amounts of capital from a large group of individuals (the crowd) to assist in funding a cause, need or an entrepreneur and their business venture.”

A key individual behind Uprise Africa is Patrick Schofield who founded what is considered to be South Africa’s leading crowdfunding platform, Thundafund, in 2014. It operates on the same method where the project that is being funded is expected to give the funder something back in the form of a reward, which is how sites like Kickstarter operate and how Mark Kelly and Marillion started. While Uprise Africa is currently focused on South Africa, Thundafund is a global platform.

In Kenya, there is M-Changa, which was established by Kyai Mullei and David Mark, as an online and mobile fundraising platform for individuals, businesses and organisations, and has several hundred fundraisers in the health, education, life and community needs segments. Currently, there is also Le Lapa Fund, based in France, which operates as an investment fund, primarily for business in Kenya. Another crowd in the game is the African Crowdfunding Association which was established as an industry association to “lobby for crowdfunding legislation creation and reforms, increase public awareness, and to create a more cohesive industry structure in Africa that protects investors and democratises access to capital for all Africans.” It was registered in South Africa as a non-profit organisation and currently lists fourteen platforms from South Africa, Nigeria, Kenya, Netherlands and Nigeria as members.

With so many Africans in the diaspora as well as on the continent, and with many others around the world interested in contributing to the development of Africa, crowdfunding has definite potential to alter our future as Africans.

“Donations and equity platforms are the fastest-growing crowdfunding models.”

“Equity crowdfunding exchanges capital investment from the crowd for equity shares in the entrepreneur's business.”